banks and IPO's

The Reserve bank of India has fined seven banks for their role in the allotment of shares in the initial public offerings by firms. While the move is belated, it needs to be welcomed for taking note of investor concerns and norms already in the books of these banks. It is a good move for ensuring long term stability of the stock markets.
In a recent case, just a handful of individuals managed to open 14000 demeterialsed accounts and route them to corner a large share of the offering of a public issue from the Infrastructure development finance corporation. There was a lot of concern expressed at the fact that the regulator did not act in time to avoid such manipulation.
While the fine in itself is not a very big amount, ranging from Rs five to twenty lakhs, it does harm a banks reputation and sends a strong message. Banking norms will ensure that the banks that have been fined will have to mention the penalty in their annual report thus denting their credibility.
The action also brings into focus the myth of the small investor. It appears that a large part of the small investors are in fact punters shopping to get shares at a discount price just too offload it at the earliest opportunity for a profit. While there is nothing intrinsically wrong with such a move, it is important to underline that these are not hapless small individuals that they are often made out to be but speculators.
Speculators do not deserve special treatment.
The Indian markets need a vigilant regulator and restoring the confidence in the purchasing of shares in initial public offerings is a critical step if the dream run of the Sensex is to be sustained and taken forward. Unlike many foreign markets, the Indian bourses have been so far powered by domestic and foreign institutional investors. If the faith of the domestic investor is restored in the stock markets the Sensex can easily go to greater heights. The penalty will go a long way in curbing the speculative instincts of a section of the players in the bull market who try to coroner a large share of the initial public offerings. The fine on the banks is an important though symbolic step in ensuring that banking norms are followed and market speculation curbed.